Markets weekly: Sigma Healthcare, Bellamy’s and Domino’s shares fall

Posted: 9 July 2018 10:08 am
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Copper, iron ore and zinc prices slide while gold and oil prices remain steady.

Despite a cautious start to the week, Australian stocks shrugged off global trade worries to spur the market to a ten-and-a-half year high. Tariffs affecting US$34 billion in Chinese imports commenced in the US Friday afternoon, drawing the ire of China who has vowed to respond in kind. Locally, the RBA held the cash rate at 1.5% for a record 21st consecutive meeting.

The ASX 200 climbed 77.7 points (1.3%) to reach 6,272.3, while the All Ordinaries closed 66 points higher (1.1%) at 6,355.7.

Major movers last week

The telecom sector enjoyed a leap of 6%, followed by the utilities and industrials sectors which gained 3.3% and 2.2% respectively. Materials stocks sagged 1.2% as commodity prices weakened.

Sigma Healthcare (ASX: SIG) plunged 42% on the news that its contract negotiations with Chemist Warehouse failed. The company also announced poor trading conditions, leading to a major profit downgrade. Agriculture business Elders (ELD) dived 15.4% on Friday as it issued its own profit warning in response to lower cattle prices and the effects of a drought.

Several other companies took a hit as brokers sharpened their pencils and revised forecasts. Few were hit harder than Bellamy’s (ASX: BAL), which declined 19.6% as Goldman Sachs adjusted its earnings timeline and lowered its price target. The broker cited potential delays regarding BAL’s application with the China Food and Drug Administration. Domino’s (ASX: DMP) lost 6% as Credit Suisse and Citi downgraded on concerns surrounding the company’s operations in Japan.

Elsewhere, Morgan Stanley expressed caution in the funds space, cutting earnings forecasts for Magellan Financial Group (ASX: MFG) and Platinum Asset Management (ASX: PTM). While MFG managed to recoup most of its losses for the week, PTM was down 5.6%.

However, it wasn’t all bad news. Clydesdale Bank (ASX: CYB) was a standout, gaining 10.3%. Afterpay Touch Group (ASX: APT) advanced 6.4% to $9.95 as Goldman Sachs upgraded it to a "buy" with a price target of $11.15. St Barbara (ASX: SBM) also notched up the same gains for the week following a record quarterly and annual production update.

Commodities and Forex

Trade tension and a slowdown in China manufacturing shaped commodity prices last week. Gold and oil prices were largely unchanged at US$1256/oz and US$73.92 respectively, with a surge in Saudi Arabian oil production offset by supply disruptions among other OPEC members.

Meanwhile, copper prices resumed their downtrend due to strong supply levels, sliding over 4% to US$2.82/lb. Iron ore and zinc were also on the back foot. Iron ore hit three-month lows, while zinc touched a yearly low on account of increasing zinc inventories.

The Australian dollar ended the week at US$74.3 cents, with the RBA decision having little impact on trading. Although construction job growth and activity recorded disappointing readings, the AUD gained on a record exports result and better-than-expected retail trade data.

Overseas, US non-farm payroll data exceeded expectations but was overshadowed by a subdued reading in ADP employment. The USD also came under pressure from a tick up in unemployment, higher jobless claims and lower earnings growth.

What to watch this week

China’s stock market is at its lowest level in over two years amid a variety of trade risks, rising debt, policy adjustment and economic slowdown. The Chinese government intervened to support the Yuan, so investors are likely to monitor any details that emerge on retaliatory trade tariffs.

China and the US will both release data on inflation, export and import prices, and producer prices. Australian forex traders will be watching monthly surveys for business and consumer confidence, in addition to home loan borrowing data.

Markets weekly is a weekly summary of what happened with ASX-listed shares last week, as well as key commodity price movements and updates on the Australian dollar. Check back every Monday for the latest roundup.
Rene Anthony owns shares in ASX:SIG and ASX:BAL. He does not own shares in the other companies referred to in this article. This article may contain general advice. Consider your own circumstances, and obtain professional advice, before acting on any of the information contained in this article.

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